During 1945 and 1946, the national currency, the pengő, was all but destroyed by the most ruinous hyperinflation in recorded history. The only way to restore sanity to the economy was a new currency, so the forint was reintroduced in 1946.

By 1947, the Communists had all but emasculated the other parties in the coalition, and became the largest single party in elections held that year. The Communists were the dominant partners in the coalition People's Independence Front government. Nagy was replaced as prime minister by the more pliable Lajos Dinnyés.

In October 1947, the Communists dropped all pretense of democracy. Rákosi gave the leaders of the non-Communist parties an ultimatum: cooperate with a new, Communist-dominated coalition government or go into exile.[5] The Social Democratic Party effectively ceased to exist as an independent organization, and Independent Smallholders' Party secretary Béla Kovács was arrested and sent to Siberia. Other opposition leaders such as Anna Kéthly, Ferenc Nagy and István Szabó were imprisoned or sent into exile.

The Republic of Hungary effectively ended in June 1948, when the Social Democrats were forced to merge with the Communists to form the Hungarian Working People's Party. The few independent-minded Social Democrats still left in the party were soon pushed out, leaving the MDP as the MKP under a new name. In August, Tildy was forced out as president in favour of Social Democrat-turned-Communist Árpád Szakasits. That December, Dinnyés was replaced as leader of the Smallholders and prime minister by the openly pro-Communist István Dobi. At the 1949 elections, voters were presented with a single list from the Communist-controlled Independent People's Front, which carried 95 percent of the vote.